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property itself? Could one say, for example (and ignoring for the moment the question of whether minors can hold property interests), that my children have any interest in the £10,000 you hold on trust for them, or in any investments you buy with it to hold on their behalf?
One immediate apparent difficulty can be cleared out of the way to start with, and this is the precise identity of the assets in which they might be said to have an interest. There are two reasons why we might hesitate to say that they have an interest in the original £10,000, or in any of the specific investments you buy with it. The first is that expenses will be incurred in the administration of the trust, and taxes will be payable in respect of the assets you are holding on trust. You as trustee are not of course expected to pay these out of your own pocket: you will pay them out of the trust assets. The beneficiaries can therefore never assume that any particular asset will be given to them or even used for their direct benefit: you might instead decide to sell it to raise the money to pay taxes and expenses. The second is that, because you as trustee have the duty to invest the money, you must be free to buy and sell specific assets at your discretion without asking or even telling the children, and you must also have the power to sell any given asset freed from any obligation that it should be used for the benefit of the children. For these reasons, it is difficult to see how the children can be said to have any interest in any particular assets, except in the very general sense that they have the right to insist that they are used only for purposes authorised by the trust. This was the conclusion reached by the minority in the House of Lords in the classic case, Baker v. Archer-Shee [1927] AC 844. The majority view – that the beneficiary did have an interest in each investment – is understandable in the taxation context they were considering, but would be an inaccurate analysis of the beneficiary’s position if taken outside that context.
However, there is a more convincing analysis not canvassed in the Archer-Shee case. If viewed more abstractly, it can be seen that what you as trustee are holding is a fund, a fluctuating body of assets from time to time representing the original £10,000, out of which you as trustee deduct the proper expenses of the fund, and the balance of which must ultimately go to the children and to no one else. Viewed in this light, it is perfectly intelligible to say that, while the children have no property interest in any specific asset vested in you as trustee, they do have an interest in the abstract fund represented by the assets you hold from time to time on their behalf. This is the analysis implicitly accepted by both the Court of Appeal and the House of Lords in another taxation case, Gartside v. Inland Revenue Commissioners [1968] AC 553, although they differed over the question of when a beneficiary can be said to have an interest, in the sense of an entitlement to benefit, as opposed to an expectancy of benefiting. For further analysis of the idea of property in a fund see Nolan, ‘Property in a Fund’.
8.4.2.2. Administration of property on death
Since property interests are, by definition, not personal to the interest holder, it follows that, when a person dies holding a property interest, that property interest
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continues to exist. This does not of course apply to interests whose duration is fixed by reference to the holder’s lifetime. Take, for example, the case of an option to purchase an interest in land, which is itself an interest in land for the reasons given in section 12.3.4 below. If I was to grant you an option to purchase the freehold interest in my house at any time during your lifetime for £100,000, the option will automatically expire when you die, whereas if we had agreed that the option was exercisable at any time over the next fifty years, the option will continue for the full fifty-year period despite your death before then.
So what actually happens to that option if you die before the fifty-year period is up? Ultimately, all your property (the option included) will go to whichever of your relatives becomes qualified to take under sections 45 and 46 of the Administration of Estates Act 1925 as amended, unless you left a will directing that it should go elsewhere. However, this cannot happen instantaneously when you die. Someone has to carry out the bureaucratic task of sorting out what property you had, paying all your debts out of it (which may involve selling some or all of it), and identifying who is now entitled to what out of what is left. You, the testator, can choose who is to carry out that task by appointing that person as executor in your will, and, if you do that, then the title to all your property will automatically vest in that person when you die (sections 1 and 3 of the Administration of Estates Act 1925). If you do not appoint an executor, anyone claiming an interest in your property can apply to the court to be appointed as an administrator to carry out the same functions. This will necessarily take some time, and so pending the appointment of an administrator the title to all your property vests in a public official, the Public Trustee, who has no function other than to hold the nominal title until it can be passed on to an administrator (section 9 of the 1925 Act, as substituted by section 14 of the Law of Property (Miscellaneous Provisions) Act 1994).
Your executor or administrator (collectively called ‘personal representatives’) will not only have title to your property but will also have extensive powers to deal with it while carrying out the administration of your affairs. The Administration of Estates Act 1925 as amended gives personal representatives powers equivalent to those held by trustees over trust property and clearly, since their function is to get your property together, pay off your debts and their expenses and then pass the balance on to your beneficiaries, they can be said to be under a duty to exercise these powers over your property for the benefit of these prospective beneficiaries. They are certainly not entitled to exercise them for their own benefit. Does this mean that the people who will ultimately take the net assets left after administration of your estate have a beneficial interest in your property during the course of the administration, just as a beneficiary under a trust would have? This question has caused some confusion in the past. It had been argued that, when you die holding property beneficially, the beneficial interest must be somewhere pending its ultimate transfer to your beneficiaries. It cannot be in abeyance. It cannot be held by your personal representatives because, like trustees, although they are
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nominally the owners they are not allowed to use the property for their own benefit. Therefore, the argument goes, they must be holding it for the benefit of the prospective beneficiaries, and therefore those beneficiaries must be taken to have the beneficial interest in your assets from the moment you die. This, however, is a very mechanistic view of property interests. Just because it is possible to split the nominal title and the beneficial interest in property between two people through the mechanism of a trust, it does not necessarily follow that, whenever someone holds only the nominal title to property (i.e. they hold property that they are not allowed to use for their own benefit), there must be someone else somewhere who holds the beneficial interest. The title holder may be holding the property for some abstract purpose (consider, for example, the trustees of a charitable trust) or with the duty to administer it for the benefit of some as yet unascertained persons. Provided there is in place some mechanism for ensuring that the title holders do indeed use the property for the requisite purposes and not for their own benefit, there is no practical reason why anyone else should have to have property rights either in the specific assets themselves or (as in a trust) in the fund comprising those assets and their net proceeds. In Commissioner of Stamp Duties (Queensland) v. Livingston [1965] AC 694 (extracted at www.cambridge.org/propertylaw/), it was finally established that this is the correct analysis of how the property of a deceased person is held pending its transfer by the personal representatives to those who are ultimately identified as the appropriate beneficiaries. One might say that the beneficial interest is in abeyance from the date of death until the net estate is distributed, or, perhaps more accurately, one might say that there simply is no beneficial property interest during that period. Ownership has been fragmented in such a way that management has been allocated to one person and control to another (or others: see below) but no one has a proprietary right to benefit.
8.4.2.3. Bankruptcy and liquidation
A similar situation arises when a property holder becomes insolvent, but there are some significant differences. In the case of company liquidations (but not individual bankruptcy) the split between title, management and control is more complex. Given the already existing fragmentation of control, management and benefit existing in a solvent company, this is unsurprising. What happens on liquidation is that title to the company’s assets remains in the company, but the directors lose all their management powers. From that point onwards, the company can act only through the liquidator, who takes on all the directors’ powers and also enjoys additional statutory powers to enable him to get in all the company’s assets, ascertain all its liabilities and then distribute the assets among the creditors. Once this process has been completed, the company is wound up and formally ceases to exist. Although this may look superficially similar to the task carried out by the administrator of the assets of someone who has died, the important difference is that the liquidator is an officer of the court with powers and duties